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Hofeller v. Federal Trade Commission

March 25, 1936


Petition for Review of Order of the Federal Trade Commission.

Author: Evans

Before EVANS and SPARKS, Circuit Judges, and BRIGGLE, District Judge.

This appeal is from an order of the Federal Trade Commission directing petitioner to cease and desist unfair trade practices, viz., the selling in interstate commerce to concessionaires, of candy so packed as to be a lottery or gift enterprise. Because of the importance of the findings of the Federal Trade Commission, we have set forth the findings of said commission, deleting the immaterial portions.*fn*

EVANS, Circuit Judge.

Briefly stated the facts are:

Petitioner sells candy in packages which retail for five to twenty-five cents and contain various prizes ranging in value from one cent to three dollars. The consumer in purchasing a package does not know which prize he will receive nor its value. The packages are generally sold in burlesque theatres, at carnivals, and like places, where "straight" candy is not generally sold, but the Commission found that the potential competition of "straight" candy was eliminated by the sale of this prize candy. It also held that the sale of prize candy injuriously affected the business of the straight candy dealers and constituted unfair competition, and violated section 5 of the Federal Trade Commission Act (15 U.S.C.A. § 45).

Petitioner argues that (1) the complaint is insufficient to show unfair methods of competition upon which a valid cease and desist order might be predicated, (2) there was no tendency to suppress substantial competition, exploit or deceive the public (most all of the consumers not being children), and (3) the Federal Trade Commission Act is unconstitutional if it be construed to cover practices not deemed unfair at the time of its adoption.

The instant case is controlled by Federal Trade Commission v. R. F. Keppel & Bro., 291 U.S. 304, 54 S. Ct. 423, 78 L. Ed. 814. Petitioner agrees that his appeal turns upon the applicability or non-applicability of the Keppel Case. He differentiates the Keppel Case on the ground that sales to children were there the determining factor, but were here absent. It, too, was an unfair competition case involving the sale of prize candy, the sale being most generally to children.

This court followed the Keppel Case, in a recent opinion, Walter H. Johnson Candy Co. v. Federal Trade Commission, 78 F.2d 717, where we upheld a cease and desist order dealing with the sale of a prize lottery scheme in connection with the sale of candy, mostly to children.

It cannot be denied that the persuasive argument in the Keppel Case was based on the fact that the consumers of the candy were, in the main, children. We are not satisfied, however, that the conclusion there reached is not here applicable. It will be noted that the Supreme Court emphasized the factor of lottery and chance in determining what constituted an unfair method of competition, and it spoke in general terms, at times without limitation to instances where the consumers were children. The practice there disclosed was deemed offensive to some manufacturers who refrained from adopting it and therefore suffered loss. In the Keppel Case there are many facts indicative of unfair trade methods there pointed out by the court which are present in the instant case. Among such similarities are: Inferior candy sold in the prize packages; a relatively negligible amount of the candy was given in return for the price; substantial diversion of trade from actual or potential competitors; sale of the candy with the lottery feature in violation of local law; and competing manufacturers damaged by refraining from such practices.

It is quite impossible to escape the conclusion that where a competitive method employs a device whereby the amount of the return is made to depend upon chance, such method is condemned as being contrary to public policy.

Two matters in this field of law are well settled: (a) What constitutes unfair methods of competition is a question of law for the court. Federal Trade Commission v. Balme (C.C.A.) 23 F.2d 615; Federal Trade Commission v. Raladam Co., 283 U.S. 643, 51 S. Ct. 587, 75 L. Ed. 1324, 79 A.L.R. 1191; James S. Kirk & Co. v. Federal Trade Commission (C.C.A.) 59 F.2d 179; Federal Trade Commission v. Gratz, 253 U.S. 421, 40 S. Ct. 572, 64 L. Ed. 993. (b) The findings of the Federal Trade Commission are to be accepted if supported by evidence. Armand Co. v. Federal Trade Commission (C.C.A.) 78 F.2d 707; E. Griffiths Hughes, Inc., v. Federal Trade Commission (C.C.A.) 77 F.2d 886; Federal Trade Commission v. Curtis Pub. Co., 260 U.S. 568, 43 S. Ct. 210, 67 L. Ed. 408. The statute provides:

"* * * The findings of the commission as to facts, if supported by testimony, shall be conclusive." (15 U.S.C.A. § 45).

The issue is therefore narrowed to whether there was evidence to support the findings of the Commission and, if so, whether the facts found were such as to fall within the purview of the legal conception of "unfair methods of competition." As the Supreme Court has interpreted that phrase, the dominant factor seems to be the element of competition, actual or potential, and ...

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